J U L Y 2 0 2 0 INVESTOR PRESENTATION Preliminary Results for year ended 28 March 2020
Table of contents 01 Covid-19 – FY21 Q1 Impact and Current Trading 02 FY 2020 Results Overview 03 Strategy and Outlook 04 Appendix 1
1. COVID-19 – FY21 Q1 IMPACT AND CURRENT TRADING
COVID-19 – FY21 Q1 IMPACT AND CURRENT TRADING Current status Revenue has recovered strongly following the ending of lockdowns (£ millions) April May June Total UK & Europe Soft Flooring 3.1 6.9 24.5 34.5 UK & Europe Ceramic Tiles 11.8 20.2 28.2 60.3 Australia 5.3 9.4 8.6 23.3 Total 20.2 36.4 61.4 118.0 % of Pre-Covid-19 budget 35% 55% 102% 64% Liquidity remains strong • Q1 total operating cash flow: only c. -£7 million (not dissimilar to a normal year) • Net Debt (pre IFRS-16) at 30 June: c. £385 million • Cash and undrawn credit lines: c. £180 million Credit rating • Moody’s, Fitch, and S&P have all affirmed their previous credit ratings of B1, BB -, and BB-, respectively (albeit with a ‘negative outlook’ due to the economic environment) 3
COVID-19 – FY21 Q1 IMPACT AND CURRENT TRADING Victoria is in a strong financial and market position Low operational gearing • c. 54% of operating costs are wholly variable with revenue. This includes raw materials, energy, and freight • c. 36% is semi-variable (which the Board defines as being capable of being significantly changed within 60 days) such as direct labour, logistics, and marketing expenditure • c. 10% is fixed Secure supply chain • Highly diversified and invariably localised to the key manufacturing plants. Access to raw materials is secure Highly experienced and motivated operational management • Almost all managers are meaningful shareholders • Many have been in the industry for 30 years or more • A track record of successfully navigating through deep economic downturns Wide geographic spread of both manufacturing operations and customers • The effect on Group revenue (and its subsequent recovery) spread over time, moderating the impact Diversified customer base • Creditworthy • No customer concentration Resilient balance sheet / adequate cash liquidity • In July 2019 and in January 2020 Victoria issued a total of €500 million of Senior Secured Notes (“bonds”). These bonds are not due before July 2024 and have no maintenance financial covenants • £75m committed RCF, also maturing 2024 4
2. FY 2020 RESULTS OVERVIEW
FY 2020 RESULTS OVERVIEW Financial highlights “FY 2020 was another record year in terms of revenues and margins, with consistent strong cash flow conversion” • • REVENUE: £621.5m OPERATING CASH FLOW 3 : £97.6m ‒ +10% growth ‒ 92% conversion from pre-IFRS 16 EBITDA ‒ +0.4% like-for-like growth 1 ‒ Free cash generated of £39.2 million, after tax, interest and replacement capex • EBITDA 2 : £118.1m • NET DEBT 4 : £365.9m ‒ Post-IFRS 16 ‒ Flat on prior year on a like-for-like basis ‒ 19.0% margin ‒ Adverse FX increase of £24.8m ‒ +70bps organic improvement • PBT 2 : £50.7m, EPS: 28.42p • LEVERAGE 4 : 3.0x ‒ Decline from prior year (£57.3m, ‒ Reduction of 0.2x EBITDA 35.25p) due to increase in finance costs Note 1. Like-for-like revenue growth shown on a constant currency basis and adjusted to remove the impact of acquisitions 2. EBITDA, PBT and EPS shown before increase in credit loss provision, and exceptional and non-underlying items. EPS shown on a fully-diluted basis 3. Operating cash flow defined as underlying EBITDA, less non-cash items, plus movement in working capital. Free cash flow is before acquisition, refinancing and other exceptional items 4. Net debt shown before right-of-use lease liabilities, bond issue premia and prepaid finance costs. Leverage (Net debt / underlying EBITDA) consistent with the measure used by our lending banks 6
FY 2020 RESULTS OVERVIEW Financial highlights (continued) • Covid-19 impact: ‒ Revenue in the month of March down -9% year-on-year due to Covid-19, which had a notable adverse impact on overall annual like-for-like sales growth and margins • Acquisitions: ‒ 4 much smaller acquisitions, with total consideration paid in the year of £11.0m: o G Tuft (UK & Europe Soft Flooring, May ‘19) – strategic acquisition of contract manufacturing supplier with no profit o Ibero (UK & Europe Ceramic Tiles, Aug ‘19) – high- end ceramic tile manufacturer in Spain with c. €30m revenue o Estillon (UK & Europe Soft Flooring, Nov ‘19) – underlay distributor in the Netherlands with c. €10m revenue o Ascot (UK & Europe Ceramic Tiles, Feb ‘20) – mid- high end ceramic tile manufacturer in Italy with €60m revenue • Australia return to growth: ‒ Year-on-year growth returned to +4% in H2 (constant currency) following -5% reported in H1 • Like-for-like EBITDA margin improvement: ‒ Reported margins impacted by the mix effect of lower-margin acquisitions and the adoption of IFRS 16 ‒ Like-for-like organic margin improvement of c. +70bps despite Covid-19 impact in March, comprising c. +170bps in UK & Europe Soft Flooring, c. +30bps in UK & Europe Ceramic Tiles, and c. -110bps in Australia (due to decline in H1, but reversing in H2) • Cash generation: ‒ c. £40m of free cash flow in the year (after interest, tax and replacement capex), of which o c. £12m invested in organic projects (c. £8m growth capex, c. £4m final parts of previous project exceptional costs), and o c. £27m invested in acquisitions and associated M&A costs 7
FY 2020 RESULTS OVERVIEW Operational highlights UK & Europe Soft Flooring • Carpet manufacturing: ‒ Re-focus on margin in H2 as confirmed last year, in the aftermath of a more volume oriented approach in FH19 and H1 FY20 ‒ Further rightsizing of production resource following significant reorganisation project in 2018. In the last 18 months, output has increased with approximately 115 fewer FTEs ‒ Implementation of yarn break detection systems, improving quality and reducing waste ‒ Gradual increase in operating speed of the new finishing line, with significant further quality improvement • Underlay manufacturing: ‒ Completion of purpose-built conveyor system linking five production lines to warehouse, increasing efficiency and safety ‒ Reduction in off-site storage and reconfiguration of onsite warehouse ‒ Reduction in working capital through JIT arrangements with raw material suppliers ‒ Trading up in accessories • Logistics: ‒ Further improvement of service proposition to 85% within 2 days (from 68% in FY19) ‒ Distribution Centre efficiency gains from 31 to 45 cuts per table per hour ‒ Extra cutting table added – now 6 cutting tables within 3 DCs with an overall capacity of 24,000 cuts per week ‒ Invested in a fully-automated sortation system, contributing to efficient and accurate loading ‒ Ultimate target (now possible within existing infrastructure) of next day delivery for over 90% of orders 8
FY 2020 RESULTS OVERVIEW Operational highlights (continued) UK & Europe Ceramic Tiles • Italy: ‒ Further refinement of manufacturing processes at Serra boosting output by 10% on 2 out of 3 lines ‒ Resolved capacity constraint at Serra in porcelain segment through the lease of Ascot, adding 7 million m² of capacity ‒ SKU rationalisation of c. 40 % of the acquired collection at Ascot • Spain: ‒ Integration of Saloni and Keraben manufacturing completed, allowing use of only 12 lines out of 15 available to produce the same overall quantity ‒ Developing purpose-built ranges for the growing DIY segment ‒ Integration of Ibero to come, involving both consolidation of both production and brand / marketing Australia • Positive transition: ‒ Main objectives under the previous challenging market conditions in HY1 were three-fold: rightsizing of costs, cash conservation and margin protection ‒ Integration of Melbourne underlay manufacturing into the Sydney factory was completed in Q3 FY20, delivering the targeted annual upside of AUD 1.5 million ‒ Significant focus on product development in new styles of carpet and LVT, which should benefit from H2 this year 9
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